Beat the Press

Beat the press por Dean Baker

Beat the Press is Dean Baker's commentary on economic reporting. He is a Senior Economist at the Center for Economic and Policy Research (CEPR). To never miss a post, subscribe to a weekly email roundup of Beat the Press. Please also consider supporting the blog on Patreon.

I have a birthday coming up, so it seems a good time to assess progress, or lack thereof, on the various issues that I have worked on over the decades. There is some big progress in at least a couple of areas, but not much to boast about in the others.

I’ll start with the success stories.

The Benefits of a Tight Labor Market

The big one, where I feel we really have made huge progress, is the battle for full employment. It might seem like ancient history, but a quarter century ago the absolute standard wisdom in the economics profession was that we could not get unemployment rates below 6.0 percent without ever accelerating inflation. To argue otherwise was to invite ridicule.

The reality repeatedly contradicted the theory. We sustained an unemployment rate of 4.0 percent in 2000, with only a very modest increase in the inflation rate. The recession caused by the collapse of the stock bubble drove the unemployment rate back up in 2001 and 2002, but we eventually did start to see it fall again, eventually reaching levels around 4.5 percent in 2007.

Unfortunately, this drop in unemployment was driven by a housing bubble, the collapse of which gave us the worst downturn since the Great Depression. The timid response to the recession by the Obama administration and the Republican Congress gave us a weak recovery. However, by the end of 2017, the unemployment rate was again approaching 4.0 percent.

The Federal Reserve Board had already begun raising interest rates, following the theory that an unemployment rate this low would trigger inflation. But inflation remained tame. In the summer of 2019, the Fed made the remarkable decision to lower rates, even though the unemployment rate was below 4.0 percent.

Fed Chair Jerome Powell said it was time to give the full employment side of the Fed’s mandate equal weight with the price stability side. He noted the huge benefits accruing to Black workers, Hispanic workers, people with less education, and people with criminal records from low unemployment. He said, given the huge benefits of low unemployment, he wanted to press the unemployment rate as low as possible, until there was clear evidence of inflation.

This was exactly the script that those of us on the left had been pushing for decades. It was great to hear it from the mouth of a Fed chair.

We saw this story further reinforced following the pandemic. Many leading lights of the economic profession denounced the Biden stimulus package and warned that it would take a prolonged period of high unemployment to bring inflation back down to acceptable levels.

Well, at this point we can say that the package, along with subsequent policies like the infrastructure bill and the Inflation Reduction Act, quickly boosted the economy back to full employment. While inflation did jump in 2021 and the first half of 2022, we are most of the way back down to the Fed’s 2.0 percent target, even as unemployment remains near its half century low. We are not necessarily out of the woods yet, as the Fed will likely have further rate hikes and we have not yet seen the full impact of past hikes, but, thus far, things look pretty damn good.

Furthermore, the benefits of a tight labor market for those at the bottom are clearer than ever. Work by Arin Dube, David Autor, and Annie Mcgrew shows that as much as a quarter of the wage inequality that built up over the prior four decades has been reversed with the tight labor markets in the recovery from the pandemic recession. That is a really big deal.

We also have moved away from the idea that we need to weaken unions and reduce labor market supports, like minimum wages and unemployment benefits, to have a strong labor market. These were literally the policies being pushed on countries by the OECD in the 1990s and the start of the century. They reflected the consensus view in the economics profession.

This is no longer the case. Countries with very high unionization rates, like Denmark and Sweden, have managed to maintain high levels of employment and strong growth. It is also now generally recognized that reasonable levels of minimum wages are not impediments to employment. This is huge progress.

Saving Social Security

In the 1990s there was widespread agreement across party lines that Social Security was broken and needed to be “fixed.” Only the ramshackle left and most of the public wanted to protect the current benefit structure. Incredibly, in spite of efforts supported by presidents of both parties, there were no cuts to the program.

This was a period in which the program faced serious vulnerability because of its structure and the demographics of the populations. In the 1990s, and the first decade of this century, Social Security had a large annual surplus. This was due to the fact that the huge baby boom cohort was in its prime working years. The program was structured so that its trust fund would build up a large surplus in these decades, which could then be used to partially cover the cost of the baby boomers’ retirement.

This surplus also created a door for privatization. Instead of putting the money into the trust fund, the privatizers dreamed of turning it over to Wall Street, who could make tens of billions of dollars in fees managing individual accounts.

We managed to get through these decades without privatizing or cutting the program. Now a large portion of the baby boom generation is retired and receiving benefits, eliminating the annual surplus. Also, with this huge cohort either currently dependent on Social Security, or likely to be in the very near future, cuts to benefits will face more opposition than ever. This doesn’t mean that there can never be any cuts to the program, but the probability of cuts that hit a substantial segment of the poor or middle class seems very low.

Failed Efforts

Well, that’s my good news. The story with other issues that I worked on is much less bright.

Patent and Copyright Monopolies

In the effort to promote alternative mechanisms to patent and copyright monopolies for financing innovation and creative work, I would say that we have gotten pretty much nowhere. There is virtually no understanding of how these monopolies work and that there can, in fact, be alternative mechanisms. There is also almost no understanding of how much money is at stake.

On the first point, it is really hard to get people, including economist-type people, to understand that we don’t need to attach patents to innovation and copyrights to creative work. I don’t know how many times I have laid out a scheme to have the government pay for all the research and testing involved with developing a drug and then have someone ask “how long would the patent be?” [1]

Somehow people just can’t grasp that if the government pays for the research, there is no patent, there would be no point to a patent, and there would be no one to have a claim to one. Patent monopolies are a mechanism for providing incentive. If the government paid the money (as we did with the Moderna Covid vaccine), it already provided the incentive. If the money wasn’t adequate, then people didn’t have do the work.

I recall when I read Marx back when I was an undergrad. In Capital he talks about how people see it as natural that money gets interest, failing to recognize that lending money at interest is a social relationship. There seems to be a similar story with innovation and creative work and patents and copyrights. People seem to think that these government-granted monopolies are inherent to these processes, rather than an explicit policy choice.

There are obviously arguments for these mechanisms as policy tools, but it is impossible to have a serious discussion if people don’t even recognize that they are policy tools and not facts of nature. I don’t know how to advance this point, I just know that, to date, I and others have made very little progress.

I’m sure that part of the issue is that this hits very directly at people’s view of the economy and its fairness. It is absolutely conventional wisdom that the upward redistribution of the last four decades is explained in large part by the development of technology.

However, pointing out that who benefits from this technology and how much is a political decision, destroys that view. As a practical matter, we can make patent and copyright monopolies longer and stronger, or shorter and weaker. We don’t even need to have them at all.

In a world where these monopolies do not exist, there is zero reason to think that all the educated STEM-types would get rich at the expense of everyone else. That may not be a good way to structure the economy, but the point is that it is a possible way. The fact that people like Bill Gates can get hugely rewarded for his talent and work is the result of how we chose to structure the market. It was not “technology.”

The other part of the story is getting people to understand how much money is at stake. Here also the ignorance of well-educated people is astounding. If we had a world without patent and copyright monopolies, we would likely free up more than $1 trillion a year, close to half of all after-tax corporate profits.

In the case of prescription drugs alone, we are likely talking about more than $450 billion a year. That comes to $3,000 per family or more than four times the annual food stamp budget. The money at stake with these monopolies swamps the amount at stake in almost all the political battles that take place in Washington.

Apart from the money involved, expecting someone with a serious illness to effectively pay for research that was done long ago should strike anyone as an act of irrational cruelty. Economists all go nuts if you talk about a tariff of 10-20 percent. Drug patents are effectively tariffs of several thousand percent. Furthermore, since we generally have third party payers (insurers or the government) this is not even a question of consumer choice. How can this policy possibly make any sense?

I have been around Washington long enough to know that you don’t just reshape the whole financing mechanism for prescription drugs, medical equipment, or anything else important in one big move. But it should be possible to get a foot, or ideally feet, in the door, pointing the way to alternatives. In recent months I have been hoping that it would be possible to secure funding for a trial of the open-source Covid vaccine developed by Drs. Peter Hotez and Maria Elena Bottari at Baylor College of Medicine and Texas Children’s Hospital.

This vaccine has already been used by over 100 million people in India and Indonesia, so they should not be too much question about its safety and effectiveness. It just needs a domestic trial to get FDA approval so that it can be used here.

If it were approved, the shots would likely cost less than $5 each (they cost $2 in India), compared to more than $100 a shot for the Moderna or Pfizer boosters. This contrast should help drive home the benefits of open-source funding of research, but it is an uphill battle.

For the most part, people, including progressives, can’t even conceive of a world where drugs are cheap. Their hope is largely that the U.S. government will limit drug prices in the same way that governments in Europe, Canada, and elsewhere limit them. But the idea that we would get the government to stop making drugs expensive by giving out patent monopolies is not even within their realm of thinking. That’s a problem.

The Financial Industry Money Pit

Any economics textbook tells students that the purpose of the financial industry is to facilitate transactions and to allocate capital. That should be fairly straightforward, sort of like the purpose of the trucking industry is to move goods from one place to another.

Unfortunately, while most people grasp the purpose of the trucking industry pretty well, they seem to have forgotten the textbook story on finance the moment they leave the class. The point here is simple, but important. An efficient financial industry is a small financial industry.

We want to be able to conduct transactions quickly and safely. That means I should be able to buy my groceries, pay my rent or mortgage, or do other transactions in the least amount of time and with minimal risk of fraud or theft.

We also want capital allocated efficiently. That means when someone has a useful innovation, they should be able to get the money to market it on a large scale. People also need capital to buy homes, cars, and to pay for education.

The textbook tells us we want these tasks done with as few resources as possible, meaning a minimal number of workers and capital being used. If we applied this standard in thinking about the financial industry, many issues become simple.

Take Bitcoin and other crypto currencies. These currencies serve no purpose for the real economy, they are just a form of gambling. And, how do we deal with gambling? We tax it.

Suppose we had a 1.0 percent tax on all crypto trades. That should radically downsize the industry, while raising a nice chunk of revenue for the government, with no negative effects on the real economy at all.

I know that crypto proponents insist it will eliminate racial discrimination in the financial industry and in other ways create heaven on earth. It’s hard to take these folks seriously, but let’s put it this way. In Utah, I paid 8.0 percent sales tax when I bought a pair of shoes. Surely if crypto is the way to heaven on earth, a 1.0 percent tax won’t stand in the way.

It’s the same story with the financial industry more generally. We will have roughly $40 trillion in stock trades this year, or $160 billion a day. Does anyone think capital would be less efficiently allocated if we cut this in half to $20 trillion a year? A financial transaction tax that cut the volume in trading in half would free up roughly $120 billion a year (0.5 percent of GDP) that is now spent carrying through these trades.

The same goes for other parts of the financial industry. We may not outlaw private equity, but we need not structure our tax laws to give the industry special tax advantages like the carried interest tax break. We could also look to have the Fed offer everyone digital bank accounts so that we could save tens of billions annually in bank fees. And, we could have the federal government offer low cost IRAs, like the federal employees’ Thrift Savings Plan, which would save people tens of billions annually on needless management fees charged by brokerage houses and insurance companies.

On this issue, there is some progress to report. Several states now let private sector employees buy into their state employees retirement system, effectively giving them a low-cost IRA/401(k) option.

But progress in this and other areas would be so much easier if we could just get everyone to remember their Intro Econ treatment of finance. We want it simple and we want it cheap: full stop.

In this vein, I should probably also mention the idea of converting the basis of the corporate income tax from profits to the returns companies provide to shareholders (dividends and capital gains). The logic of this is straightforward, corporate accountants tell us how much profit the company made. We can get returns to shareholders from any financial website.

This would effectively be a tax that would be impossible to avoid. The I.R.S. could calculate every company’s tax liability on a single spreadsheet. (That is, all companies tax liability could be calculated on the same spreadsheet.)

Not only does this mean that we could be sure to get the tax rate we targeted, it would also destroy the tax gaming industry. The tens of billions of dollars that companies currently spend on gaming the tax code could instead go to productive uses.

We actually have made serious progress on this sort of switch. As part of the Inflation Reduction Act, we now have a 1.0 percent tax on share buybacks. I’m sure that this tax was not put in place as a step towards shifting the basis for the corporate income tax to returns to shareholders, but it could end up being a big step in this direction.

Since buybacks are 100 percent transparent (companies can’t very well keep them a secret), this will be the easiest tax ever from the standpoint of enforcement. When people recognize how simple and easy it is to collect a tax that is based on returns to shareholders, there could be momentum to increase the portion of the income tax that is based on buybacks, dividends, and capital gains. It’s always best to tax things we can see directly, as opposed to a number manufactured by corporate accountants.

Reining in CEO Pay

It is common to see people on Twitter and elsewhere complain about the tens of millions pulled down each year by the CEOs of major corporations. While the complaints are certainly justified, they rarely go beyond moral indignation. Few make the point that CEOs are not worth their paychecks, at least in the very narrow sense that they do not produce for their companies an amount of value equal to their $20 million or $30 million paycheck. 

This point is important, since it means CEOs are ripping off the companies they work for. That implies that the shareholders of these companies should be allies in the effort to rein in CEO pay.

While that point would seem obvious, there is almost no recognition of this logical inference from most progressives. Even people who complain about CEOs using stock buybacks to manipulate stock prices and increase the value of their options, rarely take the next step and say shareholders should be upset about CEOs taking money from them.

In my view, the key to bringing down CEO pay is to give shareholders more ability to rein it in. As it stands, the corporate board of directors are supposed to be the ones who act on shareholders’ behalf to limit CEO pay. But a recent survey found that these boards don’t even see it as their responsibility to rein in CEO pay. Rather, they see their job as helping top management.

We should be focused on making it easy for shareholders to pressure boards to take CEO pay seriously. I have suggested that the “Say on Pay” votes on CEO pay, which were part of the Dodd-Frank financial reform act, have a bit more teeth.

As it stands, there is no consequence for a no vote on a CEO compensation package, except for a bit of embarrassment. Suppose that directors lost their pay if a vote went down. My guess is that if two or three packages went down, and boards felt some real consequence from overpaying their CEOs, they would start to ask questions like “can we get someone just as good for less money?” That could end the upward spiral of CEO pay and start to bring it back down to earth.

This is not just a question of a small number of top execs getting too much money. The bloated pay for CEOs affects pay structures throughout the economy. If the CEO gets $20 million, the rest of C-suite might get close to $10 million, and third tier execs can get $2 million or $3 million. This also affects pay outside the corporate sector. It is now common for presidents of universities or major charities to get several million dollars a year for their work.

The world would look very different if we had not seen the explosion of CEO pay relative to ordinary workers. If we still had the ratios of 20 or 30 to 1, that we had in the 1960s and 1970s, CEOs would be getting $2 million to $3 million a year. The lower pay for the top end of the income distribution would free up lots of money for everyone else. Unfortunately, we cannot even get a serious discussion of this issue.

Free Trade for Doctors and Other High-End Professionals

It has become gospel that the United States has pursued a policy of free trade for the last four decades. This is a lie.

Our trade policy has been focused on removing barriers to trade in manufactured goods. This has the effect of putting U.S. manufacturing workers in direct competition with low-paid workers in the developing world. This has the predicted and actual effect of reducing the number of manufacturing jobs in the United States and reducing the pay for the jobs that remain.

While this policy can be justified by pointing to the benefits for consumers in the form of lower prices, we could have gone the same route of “free trade” when it came to doctors and other highly paid professionals. The models show the gains from trade work the same way when we talk about physicians’ or dentists’ services as when we talk about cars and clothes.

However, our trade negotiators never had free trade in physicians’ services on their agenda. That is understandable, since they probably all have friends and relatives who work as doctors, dentists, or other highly paid professionals.

But, even if we have to recognize the power relations that are behind trade deals that have the effect of redistributing income upward, there is no excuse for covering up the true story by calling it “free trade.” Trade rules were constructed to redistribute income upward. No one involved in the process had any interest in real free trade.

Anyhow, we continue to get these absurd battles over “free trade.” It’s sort of like debating Catholic or Jewish theology where you first have to accept the tenets of the faith before you can be admitted into the discussion. For now, the participants in trade debates all must pretend that we have a free trade policy, instead of a policy of selective protectionism designed to screw ordinary workers.

Saving Journalism

I raise this one because there is not even a debate on the topic, simply a steady drumbeat of stories about how local newspapers are closing around the country and how national news outlets, both print and broadcast, are laying off reporters because they can’t make money in the current system. While there apparently is a big market for pieces bemoaning the current situation, there is very little interest in discussing policies that could alter the picture and revitalize reporting.

This is unfortunate, because these ideas do exist. The basic story is finding some way to get public funds to people doing journalism. For whatever reason, we can’t get a serious discussion in major news outlets about how to repair the news system.

I should also mention another aspect to this issue. Many people rightly complain about the outsize power that the rich have in politics. Under the current system, billionaires can basically contribute as much as they want to support their favored candidates or causes.

Here also, there is a lot of ink spilled decrying the situation, but almost no discussion of serious remedies. Not only would it be almost impossible to limit political contributions given the current makeup of the Supreme Court, it’s not clear it would make much difference even if we could.

Suppose no one was allowed to give more than $1,000 to a candidate and/or a PAC or PAC-equivalent. Is anyone proposing measures that would prevent right-wing billionaires from creating another Fox News, or two or three Fox News networks? Alternatively, are there proposals to prevent right-wing billionaires from buying up CBS, NBC, CNN and every other major news outlets?

If right-wing billionaires controlled all the major news outlets, they could effectively run ads for their favored candidates as “news.” They would have no reason to make campaign contributions to get their candidates elected. Their news shows would be far more effective in pushing the case.

If progressives want to be serious about countering the political power of billionaires, there is no alternative to finding mechanisms that give more voice to ordinary people. No one has even conceived of an effective way to restrict billionaires’ political power, much less put forward a proposal that would have prayer in hell of becoming law in anyone’s lifetime.

While we are on the topic of the political power of the rich, it would also be a good idea to have a serious discussion of restructuring Section 230 protection for Internet platforms. There is no obvious reason that Internet platforms should be protected from liability for defamation suits based on third party content, when print and broadcast media don’t enjoy this protection.

Although it is not feasible for these platforms to preemptively screen content for defamatory material, they could be subject to take-down rules in the same way that is now the case for allegations of copyright infringement. We can also write the rules in ways that are likely to disadvantage giants like Facebook and Twitter and benefit smaller sites.     

Anyhow, there are an infinite number of ways to slice and dice a Section 230 repeal, but the key thing is to get it on the agenda. As of now, it isn’t. All we get are complaints about the way billionaire jerks run their platforms, as though the rest of us are powerless in the story.

Changing the Narrative Is Not Easy

It is not easy to move policy debates, as most people recognize. As the old saying goes, “intellectuals have a hard time dealing with new ideas.” And, as we know, intellectuals control the outlets where these issues get debated, which means it’s hard to find an entry point to even try to move the debate. Anyhow, I will keep trying and maybe the picture will look better on my next birthday.

[1] See Rigged chapter 5 for an outline of my alternative mechanisms. (It’s free.)

I have a birthday coming up, so it seems a good time to assess progress, or lack thereof, on the various issues that I have worked on over the decades. There is some big progress in at least a couple of areas, but not much to boast about in the others.

I’ll start with the success stories.

The Benefits of a Tight Labor Market

The big one, where I feel we really have made huge progress, is the battle for full employment. It might seem like ancient history, but a quarter century ago the absolute standard wisdom in the economics profession was that we could not get unemployment rates below 6.0 percent without ever accelerating inflation. To argue otherwise was to invite ridicule.

The reality repeatedly contradicted the theory. We sustained an unemployment rate of 4.0 percent in 2000, with only a very modest increase in the inflation rate. The recession caused by the collapse of the stock bubble drove the unemployment rate back up in 2001 and 2002, but we eventually did start to see it fall again, eventually reaching levels around 4.5 percent in 2007.

Unfortunately, this drop in unemployment was driven by a housing bubble, the collapse of which gave us the worst downturn since the Great Depression. The timid response to the recession by the Obama administration and the Republican Congress gave us a weak recovery. However, by the end of 2017, the unemployment rate was again approaching 4.0 percent.

The Federal Reserve Board had already begun raising interest rates, following the theory that an unemployment rate this low would trigger inflation. But inflation remained tame. In the summer of 2019, the Fed made the remarkable decision to lower rates, even though the unemployment rate was below 4.0 percent.

Fed Chair Jerome Powell said it was time to give the full employment side of the Fed’s mandate equal weight with the price stability side. He noted the huge benefits accruing to Black workers, Hispanic workers, people with less education, and people with criminal records from low unemployment. He said, given the huge benefits of low unemployment, he wanted to press the unemployment rate as low as possible, until there was clear evidence of inflation.

This was exactly the script that those of us on the left had been pushing for decades. It was great to hear it from the mouth of a Fed chair.

We saw this story further reinforced following the pandemic. Many leading lights of the economic profession denounced the Biden stimulus package and warned that it would take a prolonged period of high unemployment to bring inflation back down to acceptable levels.

Well, at this point we can say that the package, along with subsequent policies like the infrastructure bill and the Inflation Reduction Act, quickly boosted the economy back to full employment. While inflation did jump in 2021 and the first half of 2022, we are most of the way back down to the Fed’s 2.0 percent target, even as unemployment remains near its half century low. We are not necessarily out of the woods yet, as the Fed will likely have further rate hikes and we have not yet seen the full impact of past hikes, but, thus far, things look pretty damn good.

Furthermore, the benefits of a tight labor market for those at the bottom are clearer than ever. Work by Arin Dube, David Autor, and Annie Mcgrew shows that as much as a quarter of the wage inequality that built up over the prior four decades has been reversed with the tight labor markets in the recovery from the pandemic recession. That is a really big deal.

We also have moved away from the idea that we need to weaken unions and reduce labor market supports, like minimum wages and unemployment benefits, to have a strong labor market. These were literally the policies being pushed on countries by the OECD in the 1990s and the start of the century. They reflected the consensus view in the economics profession.

This is no longer the case. Countries with very high unionization rates, like Denmark and Sweden, have managed to maintain high levels of employment and strong growth. It is also now generally recognized that reasonable levels of minimum wages are not impediments to employment. This is huge progress.

Saving Social Security

In the 1990s there was widespread agreement across party lines that Social Security was broken and needed to be “fixed.” Only the ramshackle left and most of the public wanted to protect the current benefit structure. Incredibly, in spite of efforts supported by presidents of both parties, there were no cuts to the program.

This was a period in which the program faced serious vulnerability because of its structure and the demographics of the populations. In the 1990s, and the first decade of this century, Social Security had a large annual surplus. This was due to the fact that the huge baby boom cohort was in its prime working years. The program was structured so that its trust fund would build up a large surplus in these decades, which could then be used to partially cover the cost of the baby boomers’ retirement.

This surplus also created a door for privatization. Instead of putting the money into the trust fund, the privatizers dreamed of turning it over to Wall Street, who could make tens of billions of dollars in fees managing individual accounts.

We managed to get through these decades without privatizing or cutting the program. Now a large portion of the baby boom generation is retired and receiving benefits, eliminating the annual surplus. Also, with this huge cohort either currently dependent on Social Security, or likely to be in the very near future, cuts to benefits will face more opposition than ever. This doesn’t mean that there can never be any cuts to the program, but the probability of cuts that hit a substantial segment of the poor or middle class seems very low.

Failed Efforts

Well, that’s my good news. The story with other issues that I worked on is much less bright.

Patent and Copyright Monopolies

In the effort to promote alternative mechanisms to patent and copyright monopolies for financing innovation and creative work, I would say that we have gotten pretty much nowhere. There is virtually no understanding of how these monopolies work and that there can, in fact, be alternative mechanisms. There is also almost no understanding of how much money is at stake.

On the first point, it is really hard to get people, including economist-type people, to understand that we don’t need to attach patents to innovation and copyrights to creative work. I don’t know how many times I have laid out a scheme to have the government pay for all the research and testing involved with developing a drug and then have someone ask “how long would the patent be?” [1]

Somehow people just can’t grasp that if the government pays for the research, there is no patent, there would be no point to a patent, and there would be no one to have a claim to one. Patent monopolies are a mechanism for providing incentive. If the government paid the money (as we did with the Moderna Covid vaccine), it already provided the incentive. If the money wasn’t adequate, then people didn’t have do the work.

I recall when I read Marx back when I was an undergrad. In Capital he talks about how people see it as natural that money gets interest, failing to recognize that lending money at interest is a social relationship. There seems to be a similar story with innovation and creative work and patents and copyrights. People seem to think that these government-granted monopolies are inherent to these processes, rather than an explicit policy choice.

There are obviously arguments for these mechanisms as policy tools, but it is impossible to have a serious discussion if people don’t even recognize that they are policy tools and not facts of nature. I don’t know how to advance this point, I just know that, to date, I and others have made very little progress.

I’m sure that part of the issue is that this hits very directly at people’s view of the economy and its fairness. It is absolutely conventional wisdom that the upward redistribution of the last four decades is explained in large part by the development of technology.

However, pointing out that who benefits from this technology and how much is a political decision, destroys that view. As a practical matter, we can make patent and copyright monopolies longer and stronger, or shorter and weaker. We don’t even need to have them at all.

In a world where these monopolies do not exist, there is zero reason to think that all the educated STEM-types would get rich at the expense of everyone else. That may not be a good way to structure the economy, but the point is that it is a possible way. The fact that people like Bill Gates can get hugely rewarded for his talent and work is the result of how we chose to structure the market. It was not “technology.”

The other part of the story is getting people to understand how much money is at stake. Here also the ignorance of well-educated people is astounding. If we had a world without patent and copyright monopolies, we would likely free up more than $1 trillion a year, close to half of all after-tax corporate profits.

In the case of prescription drugs alone, we are likely talking about more than $450 billion a year. That comes to $3,000 per family or more than four times the annual food stamp budget. The money at stake with these monopolies swamps the amount at stake in almost all the political battles that take place in Washington.

Apart from the money involved, expecting someone with a serious illness to effectively pay for research that was done long ago should strike anyone as an act of irrational cruelty. Economists all go nuts if you talk about a tariff of 10-20 percent. Drug patents are effectively tariffs of several thousand percent. Furthermore, since we generally have third party payers (insurers or the government) this is not even a question of consumer choice. How can this policy possibly make any sense?

I have been around Washington long enough to know that you don’t just reshape the whole financing mechanism for prescription drugs, medical equipment, or anything else important in one big move. But it should be possible to get a foot, or ideally feet, in the door, pointing the way to alternatives. In recent months I have been hoping that it would be possible to secure funding for a trial of the open-source Covid vaccine developed by Drs. Peter Hotez and Maria Elena Bottari at Baylor College of Medicine and Texas Children’s Hospital.

This vaccine has already been used by over 100 million people in India and Indonesia, so they should not be too much question about its safety and effectiveness. It just needs a domestic trial to get FDA approval so that it can be used here.

If it were approved, the shots would likely cost less than $5 each (they cost $2 in India), compared to more than $100 a shot for the Moderna or Pfizer boosters. This contrast should help drive home the benefits of open-source funding of research, but it is an uphill battle.

For the most part, people, including progressives, can’t even conceive of a world where drugs are cheap. Their hope is largely that the U.S. government will limit drug prices in the same way that governments in Europe, Canada, and elsewhere limit them. But the idea that we would get the government to stop making drugs expensive by giving out patent monopolies is not even within their realm of thinking. That’s a problem.

The Financial Industry Money Pit

Any economics textbook tells students that the purpose of the financial industry is to facilitate transactions and to allocate capital. That should be fairly straightforward, sort of like the purpose of the trucking industry is to move goods from one place to another.

Unfortunately, while most people grasp the purpose of the trucking industry pretty well, they seem to have forgotten the textbook story on finance the moment they leave the class. The point here is simple, but important. An efficient financial industry is a small financial industry.

We want to be able to conduct transactions quickly and safely. That means I should be able to buy my groceries, pay my rent or mortgage, or do other transactions in the least amount of time and with minimal risk of fraud or theft.

We also want capital allocated efficiently. That means when someone has a useful innovation, they should be able to get the money to market it on a large scale. People also need capital to buy homes, cars, and to pay for education.

The textbook tells us we want these tasks done with as few resources as possible, meaning a minimal number of workers and capital being used. If we applied this standard in thinking about the financial industry, many issues become simple.

Take Bitcoin and other crypto currencies. These currencies serve no purpose for the real economy, they are just a form of gambling. And, how do we deal with gambling? We tax it.

Suppose we had a 1.0 percent tax on all crypto trades. That should radically downsize the industry, while raising a nice chunk of revenue for the government, with no negative effects on the real economy at all.

I know that crypto proponents insist it will eliminate racial discrimination in the financial industry and in other ways create heaven on earth. It’s hard to take these folks seriously, but let’s put it this way. In Utah, I paid 8.0 percent sales tax when I bought a pair of shoes. Surely if crypto is the way to heaven on earth, a 1.0 percent tax won’t stand in the way.

It’s the same story with the financial industry more generally. We will have roughly $40 trillion in stock trades this year, or $160 billion a day. Does anyone think capital would be less efficiently allocated if we cut this in half to $20 trillion a year? A financial transaction tax that cut the volume in trading in half would free up roughly $120 billion a year (0.5 percent of GDP) that is now spent carrying through these trades.

The same goes for other parts of the financial industry. We may not outlaw private equity, but we need not structure our tax laws to give the industry special tax advantages like the carried interest tax break. We could also look to have the Fed offer everyone digital bank accounts so that we could save tens of billions annually in bank fees. And, we could have the federal government offer low cost IRAs, like the federal employees’ Thrift Savings Plan, which would save people tens of billions annually on needless management fees charged by brokerage houses and insurance companies.

On this issue, there is some progress to report. Several states now let private sector employees buy into their state employees retirement system, effectively giving them a low-cost IRA/401(k) option.

But progress in this and other areas would be so much easier if we could just get everyone to remember their Intro Econ treatment of finance. We want it simple and we want it cheap: full stop.

In this vein, I should probably also mention the idea of converting the basis of the corporate income tax from profits to the returns companies provide to shareholders (dividends and capital gains). The logic of this is straightforward, corporate accountants tell us how much profit the company made. We can get returns to shareholders from any financial website.

This would effectively be a tax that would be impossible to avoid. The I.R.S. could calculate every company’s tax liability on a single spreadsheet. (That is, all companies tax liability could be calculated on the same spreadsheet.)

Not only does this mean that we could be sure to get the tax rate we targeted, it would also destroy the tax gaming industry. The tens of billions of dollars that companies currently spend on gaming the tax code could instead go to productive uses.

We actually have made serious progress on this sort of switch. As part of the Inflation Reduction Act, we now have a 1.0 percent tax on share buybacks. I’m sure that this tax was not put in place as a step towards shifting the basis for the corporate income tax to returns to shareholders, but it could end up being a big step in this direction.

Since buybacks are 100 percent transparent (companies can’t very well keep them a secret), this will be the easiest tax ever from the standpoint of enforcement. When people recognize how simple and easy it is to collect a tax that is based on returns to shareholders, there could be momentum to increase the portion of the income tax that is based on buybacks, dividends, and capital gains. It’s always best to tax things we can see directly, as opposed to a number manufactured by corporate accountants.

Reining in CEO Pay

It is common to see people on Twitter and elsewhere complain about the tens of millions pulled down each year by the CEOs of major corporations. While the complaints are certainly justified, they rarely go beyond moral indignation. Few make the point that CEOs are not worth their paychecks, at least in the very narrow sense that they do not produce for their companies an amount of value equal to their $20 million or $30 million paycheck. 

This point is important, since it means CEOs are ripping off the companies they work for. That implies that the shareholders of these companies should be allies in the effort to rein in CEO pay.

While that point would seem obvious, there is almost no recognition of this logical inference from most progressives. Even people who complain about CEOs using stock buybacks to manipulate stock prices and increase the value of their options, rarely take the next step and say shareholders should be upset about CEOs taking money from them.

In my view, the key to bringing down CEO pay is to give shareholders more ability to rein it in. As it stands, the corporate board of directors are supposed to be the ones who act on shareholders’ behalf to limit CEO pay. But a recent survey found that these boards don’t even see it as their responsibility to rein in CEO pay. Rather, they see their job as helping top management.

We should be focused on making it easy for shareholders to pressure boards to take CEO pay seriously. I have suggested that the “Say on Pay” votes on CEO pay, which were part of the Dodd-Frank financial reform act, have a bit more teeth.

As it stands, there is no consequence for a no vote on a CEO compensation package, except for a bit of embarrassment. Suppose that directors lost their pay if a vote went down. My guess is that if two or three packages went down, and boards felt some real consequence from overpaying their CEOs, they would start to ask questions like “can we get someone just as good for less money?” That could end the upward spiral of CEO pay and start to bring it back down to earth.

This is not just a question of a small number of top execs getting too much money. The bloated pay for CEOs affects pay structures throughout the economy. If the CEO gets $20 million, the rest of C-suite might get close to $10 million, and third tier execs can get $2 million or $3 million. This also affects pay outside the corporate sector. It is now common for presidents of universities or major charities to get several million dollars a year for their work.

The world would look very different if we had not seen the explosion of CEO pay relative to ordinary workers. If we still had the ratios of 20 or 30 to 1, that we had in the 1960s and 1970s, CEOs would be getting $2 million to $3 million a year. The lower pay for the top end of the income distribution would free up lots of money for everyone else. Unfortunately, we cannot even get a serious discussion of this issue.

Free Trade for Doctors and Other High-End Professionals

It has become gospel that the United States has pursued a policy of free trade for the last four decades. This is a lie.

Our trade policy has been focused on removing barriers to trade in manufactured goods. This has the effect of putting U.S. manufacturing workers in direct competition with low-paid workers in the developing world. This has the predicted and actual effect of reducing the number of manufacturing jobs in the United States and reducing the pay for the jobs that remain.

While this policy can be justified by pointing to the benefits for consumers in the form of lower prices, we could have gone the same route of “free trade” when it came to doctors and other highly paid professionals. The models show the gains from trade work the same way when we talk about physicians’ or dentists’ services as when we talk about cars and clothes.

However, our trade negotiators never had free trade in physicians’ services on their agenda. That is understandable, since they probably all have friends and relatives who work as doctors, dentists, or other highly paid professionals.

But, even if we have to recognize the power relations that are behind trade deals that have the effect of redistributing income upward, there is no excuse for covering up the true story by calling it “free trade.” Trade rules were constructed to redistribute income upward. No one involved in the process had any interest in real free trade.

Anyhow, we continue to get these absurd battles over “free trade.” It’s sort of like debating Catholic or Jewish theology where you first have to accept the tenets of the faith before you can be admitted into the discussion. For now, the participants in trade debates all must pretend that we have a free trade policy, instead of a policy of selective protectionism designed to screw ordinary workers.

Saving Journalism

I raise this one because there is not even a debate on the topic, simply a steady drumbeat of stories about how local newspapers are closing around the country and how national news outlets, both print and broadcast, are laying off reporters because they can’t make money in the current system. While there apparently is a big market for pieces bemoaning the current situation, there is very little interest in discussing policies that could alter the picture and revitalize reporting.

This is unfortunate, because these ideas do exist. The basic story is finding some way to get public funds to people doing journalism. For whatever reason, we can’t get a serious discussion in major news outlets about how to repair the news system.

I should also mention another aspect to this issue. Many people rightly complain about the outsize power that the rich have in politics. Under the current system, billionaires can basically contribute as much as they want to support their favored candidates or causes.

Here also, there is a lot of ink spilled decrying the situation, but almost no discussion of serious remedies. Not only would it be almost impossible to limit political contributions given the current makeup of the Supreme Court, it’s not clear it would make much difference even if we could.

Suppose no one was allowed to give more than $1,000 to a candidate and/or a PAC or PAC-equivalent. Is anyone proposing measures that would prevent right-wing billionaires from creating another Fox News, or two or three Fox News networks? Alternatively, are there proposals to prevent right-wing billionaires from buying up CBS, NBC, CNN and every other major news outlets?

If right-wing billionaires controlled all the major news outlets, they could effectively run ads for their favored candidates as “news.” They would have no reason to make campaign contributions to get their candidates elected. Their news shows would be far more effective in pushing the case.

If progressives want to be serious about countering the political power of billionaires, there is no alternative to finding mechanisms that give more voice to ordinary people. No one has even conceived of an effective way to restrict billionaires’ political power, much less put forward a proposal that would have prayer in hell of becoming law in anyone’s lifetime.

While we are on the topic of the political power of the rich, it would also be a good idea to have a serious discussion of restructuring Section 230 protection for Internet platforms. There is no obvious reason that Internet platforms should be protected from liability for defamation suits based on third party content, when print and broadcast media don’t enjoy this protection.

Although it is not feasible for these platforms to preemptively screen content for defamatory material, they could be subject to take-down rules in the same way that is now the case for allegations of copyright infringement. We can also write the rules in ways that are likely to disadvantage giants like Facebook and Twitter and benefit smaller sites.     

Anyhow, there are an infinite number of ways to slice and dice a Section 230 repeal, but the key thing is to get it on the agenda. As of now, it isn’t. All we get are complaints about the way billionaire jerks run their platforms, as though the rest of us are powerless in the story.

Changing the Narrative Is Not Easy

It is not easy to move policy debates, as most people recognize. As the old saying goes, “intellectuals have a hard time dealing with new ideas.” And, as we know, intellectuals control the outlets where these issues get debated, which means it’s hard to find an entry point to even try to move the debate. Anyhow, I will keep trying and maybe the picture will look better on my next birthday.

[1] See Rigged chapter 5 for an outline of my alternative mechanisms. (It’s free.)

The New York Times editorial board came to a shocking realization this week: we are living on borrowed money. That was the headline of an editorial it ran calling for deficit reduction.

Having discovered the deficit, the piece then went on to call for a combination of increased revenue and reduced spending to reduce the need to borrow. In this process, it insisted that cuts to Social Security and Medicare must be on the table.

Needless to say, this insistence caught the eye of many people. Republicans, and many Democrats, have been looking to cut and/or privatize these programs for decades. Beating back these efforts has been a major victory against the drive to give all the money to the rich.

Seeing the NYT join the ranks of those demanding cuts is more than a bit disturbing. Of course, this is not the first time the NYT’s editorial board has joined with those on the right. Back in the 1980s the paper famously told readers that the “right minimum wage” was $0.00.

But let’s step back for a moment and look at the bigger picture. The NYT is indisputably correct in saying that we are running unusually large annual deficits. However, the piece is more than a bit off the mark in focusing on the debt, rather than these deficits.

Here it spends a lot of time getting into the “really big number” game, telling us:

“Over the next decade, the Congressional Budget Office projects that annual federal budget deficits will average around $2 trillion per year, adding to the $25.4 trillion in debt the government already owes to investors.”

The NYT has a very educated readership, but I am fairly certain that almost none of its readers has any idea what $2 trillion a year means, nor do they have a good idea how large $25.4 trillion is over the course of a decade. And, I am also pretty sure the NYT editorial board knows that its readers don’t know what these really big numbers mean. But hey, this is a good way to scare people.

The piece does tell us the debt is projected to hit 115 percent of GDP by the end of this period. If that’s scary, consider that Japan’s debt is over 250 percent of GDP, and its economy has yet to collapse.

But, there is potentially a real issue here, if we get beyond the really big number silliness. Deficits can get so large that they raise inflation to unacceptable rates. Here the problem is not that we are borrowing (we can always print money, as out MMT friends remind us), the problem is that we are creating too much demand in the economy.

This can be a concern, but it seems as though that is not the case just now. We did have a bought of inflation in the last two and a half years, but that was largely driven by the pandemic and the fallout from Russia’s invasion of Ukraine. The rate of inflation is now dropping by almost every measure and we are moving back towards the Fed 2.0 percent target, even if the pace of the decline may not be fast enough for some people. This suggests that deficits may not be too large.

It is also worth noting that when we look at deficits as a share of GDP, they are projected to be below 6.0 percent of GDP for the rest of this decade, with the exception of a projected deficit of 6.2 percent in 2025. That is high by historic standards, but not hugely out of line with what we have seen in the past. The deficit was 4.6 percent of GDP in 2019, when inflation was still at the Fed’s target, with no evidence of inflation rising out of control.

Many prominent economists, like Larry Summers, argued that the economy faced a problem of “secular stagnation” meaning there was too little demand in the economy to keep it running near its capacity. This was due to the fact that huge amount of income had been shifted upward to people who were less likely to spend it, and also that slower labor force growth meant less need for companies to invest to accommodate a growing workforce. In that context, large deficits were actually needed to keep the economy near full employment.

As a practical matter, we don’t know exactly how large those deficits have to be. Before the pandemic, a deficit near 5.0 percent of GDP seemed fine. Is a deficit near 6.0 percent of GDP also fine? Given the recent course of inflation data, it seems that it might be, but we can at least acknowledge it is an open question.

Reducing the Deficit Versus Reducing Demand in the Economy

Let’s assume for the moment that we really do have a problem with inflation. The issue is not the deficit per se, but rather too much demand in the economy. So, we should be asking the larger question of how we can reduce demand in the economy, not just the narrow question of how we can reduce the government deficit.

One way the government creates demand in the economy is through its granting of patent and copyright monopolies. While discussion of these government-granted monopolies seems to be strictly forbidden in the pages of the New York Times, they are actually a huge deal in terms of the economy. These monopolies cost us on the order of $450 billion a year (1.8 percent of GDP) in the case of prescription drugs alone. We will spend over $550 billion this year on prescription drugs that would likely cost less than $100 billion in a free market.

Drugs would almost invariably be cheap if they were sold in a free market without patents or other related protections. Instead, drugs that might sell for $20 or $30 a prescription as generics, will instead sell for thousands or even tens of thousands of dollars with a government-granted monopoly. If we want to get serious about reducing inflationary pressures in the economy, we could talk about scaling back these monopolies, which inflate prices not only for drugs, but also medical equipment, computers, software, and a wide range of other items.

Unfortunately, this possibility never gets raised in the context of deficit reduction. Perhaps it hits too close to home for the people who control major news outlets, since the beneficiaries of these monopolies likely include many of their friends and relatives. It’s possible to talk tough about cutting Social Security and Medicare, but not the payments that those at the top end of the income distribution get as a result of these government-granted monopolies.

There are of course many other areas where changing the rules can lead to large reductions in demand. If we were as determined to have free trade for doctors’ services (a possibility enhanced with telemedicine) and the services of other highly paid professionals, as we were with cars and clothes, we could save hundreds of billons annually in payments for a wide range of services.

A financial transactions tax, comparable to the sales taxes that we pay on most items we buy, could reduce the resources wasted in the financial sector by well over $100 billion a year (0.5 percent of GDP). But again, the industry is so powerful that this is not discussed in polite circles.

Anyhow, I could go on (see Rigged, it’s free), but the point here should be clear. For whatever reason, the NYT editorial board decided it had to show it’s tough by putting Social Security and Medicare on the table, programs that working people depend on to protect them in their old age and in the event of disability. However, when it comes to the rules the government has put in place that are responsible for the massive inequality we see in the economy today, well, the NYT editorial board is not that tough.

The New York Times editorial board came to a shocking realization this week: we are living on borrowed money. That was the headline of an editorial it ran calling for deficit reduction.

Having discovered the deficit, the piece then went on to call for a combination of increased revenue and reduced spending to reduce the need to borrow. In this process, it insisted that cuts to Social Security and Medicare must be on the table.

Needless to say, this insistence caught the eye of many people. Republicans, and many Democrats, have been looking to cut and/or privatize these programs for decades. Beating back these efforts has been a major victory against the drive to give all the money to the rich.

Seeing the NYT join the ranks of those demanding cuts is more than a bit disturbing. Of course, this is not the first time the NYT’s editorial board has joined with those on the right. Back in the 1980s the paper famously told readers that the “right minimum wage” was $0.00.

But let’s step back for a moment and look at the bigger picture. The NYT is indisputably correct in saying that we are running unusually large annual deficits. However, the piece is more than a bit off the mark in focusing on the debt, rather than these deficits.

Here it spends a lot of time getting into the “really big number” game, telling us:

“Over the next decade, the Congressional Budget Office projects that annual federal budget deficits will average around $2 trillion per year, adding to the $25.4 trillion in debt the government already owes to investors.”

The NYT has a very educated readership, but I am fairly certain that almost none of its readers has any idea what $2 trillion a year means, nor do they have a good idea how large $25.4 trillion is over the course of a decade. And, I am also pretty sure the NYT editorial board knows that its readers don’t know what these really big numbers mean. But hey, this is a good way to scare people.

The piece does tell us the debt is projected to hit 115 percent of GDP by the end of this period. If that’s scary, consider that Japan’s debt is over 250 percent of GDP, and its economy has yet to collapse.

But, there is potentially a real issue here, if we get beyond the really big number silliness. Deficits can get so large that they raise inflation to unacceptable rates. Here the problem is not that we are borrowing (we can always print money, as out MMT friends remind us), the problem is that we are creating too much demand in the economy.

This can be a concern, but it seems as though that is not the case just now. We did have a bought of inflation in the last two and a half years, but that was largely driven by the pandemic and the fallout from Russia’s invasion of Ukraine. The rate of inflation is now dropping by almost every measure and we are moving back towards the Fed 2.0 percent target, even if the pace of the decline may not be fast enough for some people. This suggests that deficits may not be too large.

It is also worth noting that when we look at deficits as a share of GDP, they are projected to be below 6.0 percent of GDP for the rest of this decade, with the exception of a projected deficit of 6.2 percent in 2025. That is high by historic standards, but not hugely out of line with what we have seen in the past. The deficit was 4.6 percent of GDP in 2019, when inflation was still at the Fed’s target, with no evidence of inflation rising out of control.

Many prominent economists, like Larry Summers, argued that the economy faced a problem of “secular stagnation” meaning there was too little demand in the economy to keep it running near its capacity. This was due to the fact that huge amount of income had been shifted upward to people who were less likely to spend it, and also that slower labor force growth meant less need for companies to invest to accommodate a growing workforce. In that context, large deficits were actually needed to keep the economy near full employment.

As a practical matter, we don’t know exactly how large those deficits have to be. Before the pandemic, a deficit near 5.0 percent of GDP seemed fine. Is a deficit near 6.0 percent of GDP also fine? Given the recent course of inflation data, it seems that it might be, but we can at least acknowledge it is an open question.

Reducing the Deficit Versus Reducing Demand in the Economy

Let’s assume for the moment that we really do have a problem with inflation. The issue is not the deficit per se, but rather too much demand in the economy. So, we should be asking the larger question of how we can reduce demand in the economy, not just the narrow question of how we can reduce the government deficit.

One way the government creates demand in the economy is through its granting of patent and copyright monopolies. While discussion of these government-granted monopolies seems to be strictly forbidden in the pages of the New York Times, they are actually a huge deal in terms of the economy. These monopolies cost us on the order of $450 billion a year (1.8 percent of GDP) in the case of prescription drugs alone. We will spend over $550 billion this year on prescription drugs that would likely cost less than $100 billion in a free market.

Drugs would almost invariably be cheap if they were sold in a free market without patents or other related protections. Instead, drugs that might sell for $20 or $30 a prescription as generics, will instead sell for thousands or even tens of thousands of dollars with a government-granted monopoly. If we want to get serious about reducing inflationary pressures in the economy, we could talk about scaling back these monopolies, which inflate prices not only for drugs, but also medical equipment, computers, software, and a wide range of other items.

Unfortunately, this possibility never gets raised in the context of deficit reduction. Perhaps it hits too close to home for the people who control major news outlets, since the beneficiaries of these monopolies likely include many of their friends and relatives. It’s possible to talk tough about cutting Social Security and Medicare, but not the payments that those at the top end of the income distribution get as a result of these government-granted monopolies.

There are of course many other areas where changing the rules can lead to large reductions in demand. If we were as determined to have free trade for doctors’ services (a possibility enhanced with telemedicine) and the services of other highly paid professionals, as we were with cars and clothes, we could save hundreds of billons annually in payments for a wide range of services.

A financial transactions tax, comparable to the sales taxes that we pay on most items we buy, could reduce the resources wasted in the financial sector by well over $100 billion a year (0.5 percent of GDP). But again, the industry is so powerful that this is not discussed in polite circles.

Anyhow, I could go on (see Rigged, it’s free), but the point here should be clear. For whatever reason, the NYT editorial board decided it had to show it’s tough by putting Social Security and Medicare on the table, programs that working people depend on to protect them in their old age and in the event of disability. However, when it comes to the rules the government has put in place that are responsible for the massive inequality we see in the economy today, well, the NYT editorial board is not that tough.

Remember all those stories in the New York Times, Washington Post, National Public Radio, and elsewhere telling us about the looming disaster facing China because of its declining population. The problem was that the declining population meant a smaller workforce, which would be a drag on the economy.

It turns out that things in China are even worse than we were previously told. Not only is the country running out of workers, it turns out that it is also running out of jobs. At least that is what a New York Times article told readers. According to the piece, there is a serious shortage of jobs, which is making it hard for older workers to get employed. Apparently, employers would prefer to higher younger workers when they have a choice.

If it seems contradictory that a country could both face a labor shortage and have a shortage of jobs for the people seeking employment, then you are far too committed to logic and common sense to ever be taken seriously in Washington policy debates.

There are situations where an economy can have too few jobs, which is a situation of inadequate demand like the United States faced in the Great Depression or the Great Recession. It can also face a situation where it has a shortage of workers, like the U.S. arguably did in 2022.

Of course, that is likely to be a mixed picture from a social standpoint, since a shortage of workers means that workers have their choice of jobs. Anyhow, it is only in Washington policy debates, not in the real world, that both these problems can be hitting a country at the same time. 

There is one other point worth noting in this article. It tells readers:

“It’s hard to trust employment data from the Chinese government, which counts anyone who has worked one hour a week. That low bar has kept the urban unemployment rate at a little over 5 percent for much of this year, better than in 2019.”

The Bureau of Labor Statistics also counts a person as being employed if they worked at least one hour in the reference week for the monthly Current Population Survey.

Remember all those stories in the New York Times, Washington Post, National Public Radio, and elsewhere telling us about the looming disaster facing China because of its declining population. The problem was that the declining population meant a smaller workforce, which would be a drag on the economy.

It turns out that things in China are even worse than we were previously told. Not only is the country running out of workers, it turns out that it is also running out of jobs. At least that is what a New York Times article told readers. According to the piece, there is a serious shortage of jobs, which is making it hard for older workers to get employed. Apparently, employers would prefer to higher younger workers when they have a choice.

If it seems contradictory that a country could both face a labor shortage and have a shortage of jobs for the people seeking employment, then you are far too committed to logic and common sense to ever be taken seriously in Washington policy debates.

There are situations where an economy can have too few jobs, which is a situation of inadequate demand like the United States faced in the Great Depression or the Great Recession. It can also face a situation where it has a shortage of workers, like the U.S. arguably did in 2022.

Of course, that is likely to be a mixed picture from a social standpoint, since a shortage of workers means that workers have their choice of jobs. Anyhow, it is only in Washington policy debates, not in the real world, that both these problems can be hitting a country at the same time. 

There is one other point worth noting in this article. It tells readers:

“It’s hard to trust employment data from the Chinese government, which counts anyone who has worked one hour a week. That low bar has kept the urban unemployment rate at a little over 5 percent for much of this year, better than in 2019.”

The Bureau of Labor Statistics also counts a person as being employed if they worked at least one hour in the reference week for the monthly Current Population Survey.

The New York Times, like other major media outlets, continues to push its ideology, about how we have a choice of the market or the government. The latest is a piece by Evgeny Morozov, warning about the profit-driven pursuit of AI and the threats it poses to humanity.

In keeping with the official ideology, Morozov distinguishes between when the government controls a sector and when the private sector controls it. He ignores the obvious fact that the government always sets the rules in which private firms operate. These rules are infinitely malleable and make an enormous difference in outcomes.

I will start with my favorite, government-granted patent and copyright monopolies since they are relevant to the matter at hand. While in the official ideology, these government-granted monopolies are facts of nature, that is what is known as a “lie.” We can make them longer or stronger, or shorter or weaker, or to not have them at all and instead rely on alternative mechanisms to finance innovation and creative work.

An economy that doesn’t rely on patent and copyright monopolies, or relies on them less than the U.S. economy, is no less of a market economy. Of course, we would see radically different outcomes in terms of income and wealth distribution if we did not rely to the same extent on patent and copyright monopolies. Bill Gates would likely still be working for a living if the government didn’t threaten to arrest people who make copies of Microsoft software without his permission.

And, to take my other favorite example, we made at least five Moderna billionaires by paying the company nearly $1 billion dollars to develop a Covid vaccine and then letting it keep control of the vaccine. While many might want to see the government step in and limit Moderna’s profits by price controls or reverse this inequality with progressive taxes, but how about not having the government create the problem in the first place?

Suppose that a condition of getting the money is that all the technology is open-source, meaning that there are no patent monopolies and any non-disclosure agreements related to technology are not legally binding. That would mean that anyone working for Moderna can share their knowledge with anyone worldwide. This would likely mean both much cheaper vaccines and fewer Moderna billionaires.

And, this sort of contracting is every bit as much capitalist and market-oriented as the contract the Trump administration wrote with Moderna. It just leads to far less inequality.

Morozov gives us his basic story halfway through the piece:

“Yet neoliberalism is far from dead. Worse, it has found an ally in A.G.I.-ism [artificial general intelligence], which stands to reinforce and replicate its main biases: that private actors outperform public ones (the market bias), that adapting to reality beats transforming it (the adaptation bias) and that efficiency trumps social concerns (the efficiency bias).”

Let’s focus on biases number one and number three here, since I really don’t know what number two means. Suppose our contract with Moderna had specified that all the technology developed would be fully public. Would this sort of contract be consistent with a market bias? It seems it could be, since the government would be contracting with a private company rather than directly hiring the researchers themselves. Is there a problem with this?

Suppose we treated AI or AGI that way. Suppose that the government put up money for research, but everything was fully open. I realize that some self-imagined or real geniuses would refuse to take that deal because they envision they will be the next Bill Gates or Elon Musk. But some researchers will take it, either because they have a better sense of probabilities or they actually care about doing research for the betterment of humanity.

In that situation, we would have government-funded research that would be fully open and free, directly competing with patent-protected technology. (We could also change the patent laws so they don’t apply to AI. In the recent past, it was not possible to patent life forms, software, or business methods. The government, not the market, determines the scope of patent protection.)

Being free would give government-funded research a large advantage. We can also write liability rules to make AGI less profitable for private corporations. For example, suppose that the makers of AGI could be held liable for any harm caused by their technology, even if a customer had misused it. This could mean, for example, that Elon Musk is held liable for when a Tesla operating in self-driving mode, hits a pedestrian, even when that person was clearly ignoring a traffic light. Again, laws on liability are determined by the government, not the market.

To take my favorite example in this vein, the market does not require that we grant giant Internet platforms like Facebook and Twitter, Section 230 protection. This means that these huge companies don’t face the same risk of defamation suits for third-party content as their competitors in print and broadcast media.

Twitter and Facebook would likely be worth considerably less, and have a far less important role in shaping public debate, without this special protection. However, we would be no less of a market economy if Section 230 protection did not exist.

The supposed market bias that Morozov rails against runs directly into the “efficiency bias.” Can anyone who has looked at the U.S. financial system for even five minutes say that we have an efficiency bias? We waste hundreds of billions of dollars annually paying people to shuffle assets.

The asset shuffling makes some Wall Street types incredibly rich, but how is the economy more efficient because we have $40 trillion in stock trades a year ($180 billion a day)? Can anyone say with a straight face that we would have less efficient capital allocation if we had $20 trillion in stock trades a year instead of $40 trillion?

Suppose we got to the lower level of trading volume with a modest tax on trades, similar to the sale tax that we pay on clothes, furniture, and other items. In that world, we would have much less inequality, but it’s hard to see how it is any less capitalist or market-oriented.

There is much else about the financial system that is demonstrably inefficient. Forcing people to file their own tax returns, rather than having the government do it for them, as European countries have done for decades, is incredibly inefficient. The current I.R.A/401(k) system wastes tens of billions annually compared with a centrally run system.

We can point to many other areas where inefficiency is allowed to flourish as a result of the way we have structured the market. (See Rigged for more examples [it’s free].) It’s absurd to claim that we have structured the economy to maximize efficiency.

We have structured the economy to redistribute income to those at the top. It is understandable that the winners prefer to say that the structure was created to maximize efficiency, but it is not true. It is positively bizarre that critics of this outcome, like Morozov, are so eager to accept the claim of efficiency, but I suppose that’s what you must do to get published in major outlets like the New York Times.

The simple reality is the market is a tool, like the wheel. It is infinitely malleable. There is no given structure and there is nothing inevitable about market outcomes. The rich have rigged the market to make themselves ever richer and more powerful. But rather than having serious discussions about different ways to structure the market, major media outlets would rather just run pieces ranting against the market.

Needless to say, ranting against the wheel will not get very far. But, I suppose it makes some people feel good.

The New York Times, like other major media outlets, continues to push its ideology, about how we have a choice of the market or the government. The latest is a piece by Evgeny Morozov, warning about the profit-driven pursuit of AI and the threats it poses to humanity.

In keeping with the official ideology, Morozov distinguishes between when the government controls a sector and when the private sector controls it. He ignores the obvious fact that the government always sets the rules in which private firms operate. These rules are infinitely malleable and make an enormous difference in outcomes.

I will start with my favorite, government-granted patent and copyright monopolies since they are relevant to the matter at hand. While in the official ideology, these government-granted monopolies are facts of nature, that is what is known as a “lie.” We can make them longer or stronger, or shorter or weaker, or to not have them at all and instead rely on alternative mechanisms to finance innovation and creative work.

An economy that doesn’t rely on patent and copyright monopolies, or relies on them less than the U.S. economy, is no less of a market economy. Of course, we would see radically different outcomes in terms of income and wealth distribution if we did not rely to the same extent on patent and copyright monopolies. Bill Gates would likely still be working for a living if the government didn’t threaten to arrest people who make copies of Microsoft software without his permission.

And, to take my other favorite example, we made at least five Moderna billionaires by paying the company nearly $1 billion dollars to develop a Covid vaccine and then letting it keep control of the vaccine. While many might want to see the government step in and limit Moderna’s profits by price controls or reverse this inequality with progressive taxes, but how about not having the government create the problem in the first place?

Suppose that a condition of getting the money is that all the technology is open-source, meaning that there are no patent monopolies and any non-disclosure agreements related to technology are not legally binding. That would mean that anyone working for Moderna can share their knowledge with anyone worldwide. This would likely mean both much cheaper vaccines and fewer Moderna billionaires.

And, this sort of contracting is every bit as much capitalist and market-oriented as the contract the Trump administration wrote with Moderna. It just leads to far less inequality.

Morozov gives us his basic story halfway through the piece:

“Yet neoliberalism is far from dead. Worse, it has found an ally in A.G.I.-ism [artificial general intelligence], which stands to reinforce and replicate its main biases: that private actors outperform public ones (the market bias), that adapting to reality beats transforming it (the adaptation bias) and that efficiency trumps social concerns (the efficiency bias).”

Let’s focus on biases number one and number three here, since I really don’t know what number two means. Suppose our contract with Moderna had specified that all the technology developed would be fully public. Would this sort of contract be consistent with a market bias? It seems it could be, since the government would be contracting with a private company rather than directly hiring the researchers themselves. Is there a problem with this?

Suppose we treated AI or AGI that way. Suppose that the government put up money for research, but everything was fully open. I realize that some self-imagined or real geniuses would refuse to take that deal because they envision they will be the next Bill Gates or Elon Musk. But some researchers will take it, either because they have a better sense of probabilities or they actually care about doing research for the betterment of humanity.

In that situation, we would have government-funded research that would be fully open and free, directly competing with patent-protected technology. (We could also change the patent laws so they don’t apply to AI. In the recent past, it was not possible to patent life forms, software, or business methods. The government, not the market, determines the scope of patent protection.)

Being free would give government-funded research a large advantage. We can also write liability rules to make AGI less profitable for private corporations. For example, suppose that the makers of AGI could be held liable for any harm caused by their technology, even if a customer had misused it. This could mean, for example, that Elon Musk is held liable for when a Tesla operating in self-driving mode, hits a pedestrian, even when that person was clearly ignoring a traffic light. Again, laws on liability are determined by the government, not the market.

To take my favorite example in this vein, the market does not require that we grant giant Internet platforms like Facebook and Twitter, Section 230 protection. This means that these huge companies don’t face the same risk of defamation suits for third-party content as their competitors in print and broadcast media.

Twitter and Facebook would likely be worth considerably less, and have a far less important role in shaping public debate, without this special protection. However, we would be no less of a market economy if Section 230 protection did not exist.

The supposed market bias that Morozov rails against runs directly into the “efficiency bias.” Can anyone who has looked at the U.S. financial system for even five minutes say that we have an efficiency bias? We waste hundreds of billions of dollars annually paying people to shuffle assets.

The asset shuffling makes some Wall Street types incredibly rich, but how is the economy more efficient because we have $40 trillion in stock trades a year ($180 billion a day)? Can anyone say with a straight face that we would have less efficient capital allocation if we had $20 trillion in stock trades a year instead of $40 trillion?

Suppose we got to the lower level of trading volume with a modest tax on trades, similar to the sale tax that we pay on clothes, furniture, and other items. In that world, we would have much less inequality, but it’s hard to see how it is any less capitalist or market-oriented.

There is much else about the financial system that is demonstrably inefficient. Forcing people to file their own tax returns, rather than having the government do it for them, as European countries have done for decades, is incredibly inefficient. The current I.R.A/401(k) system wastes tens of billions annually compared with a centrally run system.

We can point to many other areas where inefficiency is allowed to flourish as a result of the way we have structured the market. (See Rigged for more examples [it’s free].) It’s absurd to claim that we have structured the economy to maximize efficiency.

We have structured the economy to redistribute income to those at the top. It is understandable that the winners prefer to say that the structure was created to maximize efficiency, but it is not true. It is positively bizarre that critics of this outcome, like Morozov, are so eager to accept the claim of efficiency, but I suppose that’s what you must do to get published in major outlets like the New York Times.

The simple reality is the market is a tool, like the wheel. It is infinitely malleable. There is no given structure and there is nothing inevitable about market outcomes. The rich have rigged the market to make themselves ever richer and more powerful. But rather than having serious discussions about different ways to structure the market, major media outlets would rather just run pieces ranting against the market.

Needless to say, ranting against the wheel will not get very far. But, I suppose it makes some people feel good.

The Washington Post has used both its opinion and news sections to push for cuts to Social Security and Medicare for many decades. It continues this effort with a piece in its series “Work Reimagined.” The headline tells it all: “More Americans are retiring than ever before. See what that means for you.”

The basic point is true. With baby boomers now almost all in their sixties or seventies, the share of the population that is retired is increasing, but the piece hugely misrepresents the dimensions and implications of this trend.

In terms of the dimensions, the piece tells us that it defines a retired person as someone over age 60 who is not in the labor force. That is an interesting metric. This is not a person who is getting Social Security or Medicare. The latter program requires that a person be over age 65 or receiving disability benefits. Workers and their spouses can qualify for benefits at age 62, but most choose to delay collecting until later into their sixties.

If we are interested in the ratio of workers to Social Security beneficiaries, we can get that one right from the Social Security Trustees Report. It tells a different story than the Washington Post.

While the Washington Post tells us that there were roughly five workers per retiree from 1980 to just past 2006, when the baby boomers began to hit 60, the Social Security Trustees Report says that the number of covered workers per beneficiary had fallen to 3.2 by 1975. It hovered near this level until beginning its downward trend in the first decade of the century, as baby boomers started to collect benefits.

The downward trend for both sets of projections after this point is similar. The ratio of workers to beneficiaries is currently about 2.8 in the Social Security projections. It is projected to drop to 2.1 over the next 40 years. The Post has it edging down to 2.7 by 2060.

While the basis for the Post’s projections are not entirely clear, my guess is that they are simply showing the ratio of the age 20 to age 60 population to the over age 60 population who are not working. This is not necessarily a very useful ratio, since many people in the former group are not in the labor force and many people over age 60 are not collecting benefits.

And, it is worth noting that the share of the age 20 to age 60 population who are not in the labor force fell sharply over the period in question, primarily because of the entry of women into the labor force. Here’s the labor force participation rates for this group since 1960. It went from roughly 68 percent at the start of the period to 83 percent at present. Even this increase understates the rise in work from this age group, since women are far more likely to be working at full-time jobs today than forty years ago, when a large percentage of women were working part-time.

But overstating the increased burden of an aging population is only part of the misrepresentation here. The flip side of an aging population is a smaller population of young children. Children also don’t work, or at least until Republicans succeed in rewriting child labor laws. Society must cover the cost of educating and providing care for children.

If we looked at the combined dependency ratio – the ratio of both children under age 18 and people over age 65 to the working age population – this peaked at 0.946 in 1965, when the baby boomers were still children. It fell to 0.669 in 2005, as the baby boomers were in their prime working age. With the aging of the baby boomers it has been rising gradually, and now stands at around 0.730. It is projected to continue to rise gradually, hitting 0.841 in forty years. The Trustees don’t project it ever getting close to its 1965 peak.

So, where is the demographic horror story?[1] We will have to reallocate resources from other things to meeting the needs of an aging population, but we also had to reallocate resources in the 1950s and 1960s to meet the needs of a huge flood of children. That is the sort of thing that competent societies do. It is also the kind of thing that should be possible when it is widely anticipated and happening over many decades, as compared to, say, a climate crisis that many politicians are determined to ignore.

In considering the cost of the aging population it would also be reasonable to mention that we pay twice as much per person for our health care as people in other wealthy countries, with no obvious dividend in terms of quality. If we paid the same amount as people in places like Canada and Germany, we would save more than $2 trillion a year (roughly 9.0 percent of GDP).

Rather than looking to cut benefits to retirees, we could look to cut payments to drug companies, medical equipment manufacturers, insurers, and doctors. But, you are not allowed to make this point in the Washington Post. They are determined to paint a picture where the only option is cutting benefits that retirees depend on.

[1] The sixties would look even worse if we used the actual number of workers, rather than the working age population, since a much smaller share of women were in the paid labor force in the 1960s than at present.

The Washington Post has used both its opinion and news sections to push for cuts to Social Security and Medicare for many decades. It continues this effort with a piece in its series “Work Reimagined.” The headline tells it all: “More Americans are retiring than ever before. See what that means for you.”

The basic point is true. With baby boomers now almost all in their sixties or seventies, the share of the population that is retired is increasing, but the piece hugely misrepresents the dimensions and implications of this trend.

In terms of the dimensions, the piece tells us that it defines a retired person as someone over age 60 who is not in the labor force. That is an interesting metric. This is not a person who is getting Social Security or Medicare. The latter program requires that a person be over age 65 or receiving disability benefits. Workers and their spouses can qualify for benefits at age 62, but most choose to delay collecting until later into their sixties.

If we are interested in the ratio of workers to Social Security beneficiaries, we can get that one right from the Social Security Trustees Report. It tells a different story than the Washington Post.

While the Washington Post tells us that there were roughly five workers per retiree from 1980 to just past 2006, when the baby boomers began to hit 60, the Social Security Trustees Report says that the number of covered workers per beneficiary had fallen to 3.2 by 1975. It hovered near this level until beginning its downward trend in the first decade of the century, as baby boomers started to collect benefits.

The downward trend for both sets of projections after this point is similar. The ratio of workers to beneficiaries is currently about 2.8 in the Social Security projections. It is projected to drop to 2.1 over the next 40 years. The Post has it edging down to 2.7 by 2060.

While the basis for the Post’s projections are not entirely clear, my guess is that they are simply showing the ratio of the age 20 to age 60 population to the over age 60 population who are not working. This is not necessarily a very useful ratio, since many people in the former group are not in the labor force and many people over age 60 are not collecting benefits.

And, it is worth noting that the share of the age 20 to age 60 population who are not in the labor force fell sharply over the period in question, primarily because of the entry of women into the labor force. Here’s the labor force participation rates for this group since 1960. It went from roughly 68 percent at the start of the period to 83 percent at present. Even this increase understates the rise in work from this age group, since women are far more likely to be working at full-time jobs today than forty years ago, when a large percentage of women were working part-time.

But overstating the increased burden of an aging population is only part of the misrepresentation here. The flip side of an aging population is a smaller population of young children. Children also don’t work, or at least until Republicans succeed in rewriting child labor laws. Society must cover the cost of educating and providing care for children.

If we looked at the combined dependency ratio – the ratio of both children under age 18 and people over age 65 to the working age population – this peaked at 0.946 in 1965, when the baby boomers were still children. It fell to 0.669 in 2005, as the baby boomers were in their prime working age. With the aging of the baby boomers it has been rising gradually, and now stands at around 0.730. It is projected to continue to rise gradually, hitting 0.841 in forty years. The Trustees don’t project it ever getting close to its 1965 peak.

So, where is the demographic horror story?[1] We will have to reallocate resources from other things to meeting the needs of an aging population, but we also had to reallocate resources in the 1950s and 1960s to meet the needs of a huge flood of children. That is the sort of thing that competent societies do. It is also the kind of thing that should be possible when it is widely anticipated and happening over many decades, as compared to, say, a climate crisis that many politicians are determined to ignore.

In considering the cost of the aging population it would also be reasonable to mention that we pay twice as much per person for our health care as people in other wealthy countries, with no obvious dividend in terms of quality. If we paid the same amount as people in places like Canada and Germany, we would save more than $2 trillion a year (roughly 9.0 percent of GDP).

Rather than looking to cut benefits to retirees, we could look to cut payments to drug companies, medical equipment manufacturers, insurers, and doctors. But, you are not allowed to make this point in the Washington Post. They are determined to paint a picture where the only option is cutting benefits that retirees depend on.

[1] The sixties would look even worse if we used the actual number of workers, rather than the working age population, since a much smaller share of women were in the paid labor force in the 1960s than at present.

The media are really going overboard in telling us the days of the free market are over with Biden’s new economic policies. President Biden has quite explicitly implemented policies intended to reshape the direction of the economy, pushing clean energy and more domestic production of advanced semiconductors and other products. He also has reinvigorated anti-trust policy, which was largely shelved by his predecessors.

But the idea that the policies of the last four decades were somehow a matter of just leaving things to the market is a grotesque lie that no person remotely familiar with economic policy should be repeating.

The Finance Industry Cesspool

I will reverse the usual course of my diatribe here and start with the financial sector. Suppose back in 2008-09 we let the market work its magic when Citigroup, Bank of America, and other financial giants were effectively bankrupted by their own greed and stupidity. We would have a radically downsized financial sector, with many fewer people earning seven and eight-figure salaries at banks. (No, we would not have had a Second Great Depression. Keynes taught us how to prevent a depression: spend money.)

We would also have a much smaller financial sector if we taxed sales of stocks, bonds, and derivatives like we taxed sales of clothes, cars, and furniture. It is the power of the financial industry, not the free market, that tells us that these financial transactions should be exempted from the sales taxes that apply to just about everything else we buy.

There is also nothing “free market” about the special tax treatment that some of the richest people in the country get when they have “carried interest” income as partners in hedge funds or private equity funds. Nor is it the free market when these funds prey on public pension funds, promising high returns that they rarely deliver.

“Free Trade” is a Story for Children and Elite Pundits

The “free trade” deals of the last forty years had little to do with free trade. We did want to remove trade barriers on manufactured goods, in order to subject our manufacturing workers to direct competition with low-paid workers in the developing world. This had the predicted effect of costing us millions of manufacturing jobs, and substantially reducing the pay of the jobs that remained.

But we could have made the focus of free trade removing barriers that protected doctors, dentists, and other highly paid professionals from competition with their lower paid counterparts in the developing world. This would have had the effect of reducing jobs and pay for U.S. born professionals.

For some reason, this was never a part of our “free trade” agreements. We could speculate this was because the people deciding on trade policy were far more likely to have friends and family members who are highly paid professionals than friends and family members who were autoworkers or textile workers, but that would be rude. In any case, this part of “free trade” deals was about a having a freer trade in a particular sector of the economy, where the predicted and actual effect was to drive down the pay of non-college educated workers.

Patent and Copyright Monopolies

The other really big part of our free trade deals was to make patent and copyright monopolies, and related protections, longer and stronger. It is incredibly Orwellian that these government-granted monopolies are somehow discussed as being the free market.

And their impact is not some small sideshow. We will spend over $550 billion this year on prescription drugs. If drugs sold in a free market, without patents or related protections, the cost would almost certainly be less than $100 billion. The difference of $450 billion is more than four times the annual food stamp budget. It’s more than half of what we spend on the military each year. It comes to more than $3,000 a family.

If we projected out over ten years, and accounted for growth in spending, it would be close to $6 trillion. That is six times President Biden’s widely touted infrastructure program.

And, it has a huge impact on inequality. The people who benefit from these monopolies are many of the country’s richest people. Bill Gates is the poster child. He would likely still be working for a living if the government didn’t threaten to arrest people who copy Microsoft software without his permission.

Just since the pandemic, we created five Moderna billionaires by paying the company to develop vaccines and then letting them keep control over the vaccines. Don’t try to tell us that is the free market.

By my calculation we transfer over $1 trillion a year to the beneficiaries of patent and copyright monopolies, compared to a situation where items like drugs, medical equipment, computer software and other items sold at their free market price. This is around 40 percent of all after-tax corporate profits.  

Why the Free Market Lie?

I could on at great length laying out other areas where the government has structured the market in ways that redistribute income upward. (See Rigged; it’s free.) It should be obvious to anyone at all familiar with economic policy over the last four decades that it was not about the free market — it was about structuring the economy in ways that made the rich richer.

It is understandable that the proponents of these policies would like to claim it was just the free market. After all, it sounds much better to tell the public, the vast majority who are losers from these policies, that “the market creates both winners and losers,” as opposed to saying, “we’re implementing polices to transfer money from you to us.”

But why do people who oppose these policies go along with the hoax? There apparently is a big market for this sort of pretending in major media outlets, but it would be nice if we could get more reality-based policy discussions.

The media are really going overboard in telling us the days of the free market are over with Biden’s new economic policies. President Biden has quite explicitly implemented policies intended to reshape the direction of the economy, pushing clean energy and more domestic production of advanced semiconductors and other products. He also has reinvigorated anti-trust policy, which was largely shelved by his predecessors.

But the idea that the policies of the last four decades were somehow a matter of just leaving things to the market is a grotesque lie that no person remotely familiar with economic policy should be repeating.

The Finance Industry Cesspool

I will reverse the usual course of my diatribe here and start with the financial sector. Suppose back in 2008-09 we let the market work its magic when Citigroup, Bank of America, and other financial giants were effectively bankrupted by their own greed and stupidity. We would have a radically downsized financial sector, with many fewer people earning seven and eight-figure salaries at banks. (No, we would not have had a Second Great Depression. Keynes taught us how to prevent a depression: spend money.)

We would also have a much smaller financial sector if we taxed sales of stocks, bonds, and derivatives like we taxed sales of clothes, cars, and furniture. It is the power of the financial industry, not the free market, that tells us that these financial transactions should be exempted from the sales taxes that apply to just about everything else we buy.

There is also nothing “free market” about the special tax treatment that some of the richest people in the country get when they have “carried interest” income as partners in hedge funds or private equity funds. Nor is it the free market when these funds prey on public pension funds, promising high returns that they rarely deliver.

“Free Trade” is a Story for Children and Elite Pundits

The “free trade” deals of the last forty years had little to do with free trade. We did want to remove trade barriers on manufactured goods, in order to subject our manufacturing workers to direct competition with low-paid workers in the developing world. This had the predicted effect of costing us millions of manufacturing jobs, and substantially reducing the pay of the jobs that remained.

But we could have made the focus of free trade removing barriers that protected doctors, dentists, and other highly paid professionals from competition with their lower paid counterparts in the developing world. This would have had the effect of reducing jobs and pay for U.S. born professionals.

For some reason, this was never a part of our “free trade” agreements. We could speculate this was because the people deciding on trade policy were far more likely to have friends and family members who are highly paid professionals than friends and family members who were autoworkers or textile workers, but that would be rude. In any case, this part of “free trade” deals was about a having a freer trade in a particular sector of the economy, where the predicted and actual effect was to drive down the pay of non-college educated workers.

Patent and Copyright Monopolies

The other really big part of our free trade deals was to make patent and copyright monopolies, and related protections, longer and stronger. It is incredibly Orwellian that these government-granted monopolies are somehow discussed as being the free market.

And their impact is not some small sideshow. We will spend over $550 billion this year on prescription drugs. If drugs sold in a free market, without patents or related protections, the cost would almost certainly be less than $100 billion. The difference of $450 billion is more than four times the annual food stamp budget. It’s more than half of what we spend on the military each year. It comes to more than $3,000 a family.

If we projected out over ten years, and accounted for growth in spending, it would be close to $6 trillion. That is six times President Biden’s widely touted infrastructure program.

And, it has a huge impact on inequality. The people who benefit from these monopolies are many of the country’s richest people. Bill Gates is the poster child. He would likely still be working for a living if the government didn’t threaten to arrest people who copy Microsoft software without his permission.

Just since the pandemic, we created five Moderna billionaires by paying the company to develop vaccines and then letting them keep control over the vaccines. Don’t try to tell us that is the free market.

By my calculation we transfer over $1 trillion a year to the beneficiaries of patent and copyright monopolies, compared to a situation where items like drugs, medical equipment, computer software and other items sold at their free market price. This is around 40 percent of all after-tax corporate profits.  

Why the Free Market Lie?

I could on at great length laying out other areas where the government has structured the market in ways that redistribute income upward. (See Rigged; it’s free.) It should be obvious to anyone at all familiar with economic policy over the last four decades that it was not about the free market — it was about structuring the economy in ways that made the rich richer.

It is understandable that the proponents of these policies would like to claim it was just the free market. After all, it sounds much better to tell the public, the vast majority who are losers from these policies, that “the market creates both winners and losers,” as opposed to saying, “we’re implementing polices to transfer money from you to us.”

But why do people who oppose these policies go along with the hoax? There apparently is a big market for this sort of pretending in major media outlets, but it would be nice if we could get more reality-based policy discussions.

It’s been hard to miss the screaming on the Internet because Dr. Peter Hotez has refused to debate RFK Jr. over vaccine safety. I think Farhad Manjoo did a good job laying out the case against Dr. Hotez debating Kennedy in a column last week.

But I think there is a more fundamental question worth asking. What exactly is the point of the outrage that these people and their Internet swarm are swirling up?

We know the rhetoric – they want to beat up the Big Pharma shills. That all sounds great except the immediate target of their anger, Dr. Hotez, is about as far from a Big Pharma shill as you can get. Dr. Hotez has devoted his career to developing low-cost vaccines, that are open-source.

This means that anyone anywhere in the world can produce them. He has deliberately used simple technologies, so that it would not be necessary to have expensive manufacturing facilities to produce them. This means that billions of people in poor countries, who would not be able to afford the patent-protected vaccines produced by Big Pharma, can afford Dr. Hotez’s vaccines.

While for the most part their markets would not overlap, to some extent there will be people who would otherwise get a vaccine from Big Pharma, but instead get the cheaper vaccine developed by Dr. Hotez and his colleagues.

In principle, many more people, including people in wealthy countries, could take advantage of the low-cost vaccines developed by Dr. Hotez. For example, instead of paying over $100 for the Moderna or Pfizer boosters against Covid, for less than $5 people in the United States could be getting shots of Corbevax, the vaccine developed by Dr. Hotez and his colleagues.

I said “could be,” because the vaccine has not been approved by the FDA. Even though more than 100 million people have received Corbevax in India and Indonesia, the FDA still requires a U.S. based clinical trial to approve the vaccine.

If the RFK/Rogan/Musk outrage gang really wanted to nail Big Pharma, they would be pushing the FDA to approve Dr. Hotez’s vaccine, rather than trashing him. In fact, Mr. Musk could even pull out some pocket change and pay for the clinical trials, if this is really what is needed to get Corbevax approved.

The issue with Big Pharma goes way beyond Corbevax or vaccines. We get hugely ripped off by the drug companies because the government grants them patent monopolies and related protections. This allows them to charge outlandish prices for the drugs that people need for their health or even their life.

We will spend over $550 billion this year for drugs that would likely sell for under $100 billion in a free market without patent monopolies. The difference of $450 billion comes to more than $3,400 a year for every household in the country. Think of that as the Big Pharma tax.

But it’s worse than just a tax that comes out of your paycheck every two weeks. This is a tax that the industry hits people with when they are in bad health. People with cancer, with multiple sclerosis, and with a wide variety of other diseases often find themselves having to struggle to get tens or hundreds of thousands of dollars for the drugs they need to sustain their health.

This can still be the case even when they have good insurance. Insurers aren’t happy to pay huge prices for drugs and they make patients jump through all sorts of hoops to get expensive drugs covered. And, even when insurers do pay for the drug, patients may still face co-pays that are a huge burden for anyone who is not a Kennedy, a Rogan, or a Musk.

It doesn’t have to be this way. If we paid for the research upfront as we did with Moderna’s Covid vaccine, in almost all cases drugs would be cheap.[1] We would be talking about paying tens or hundreds of dollars, instead of tens or hundreds of thousands of dollars.   

If the government paid for the research in advance, and then let all new drugs be sold as cheap generics, we would also eliminate the problem that the Kennedy-Rogan-Musk gang are hyperventilating over. Drug companies would no longer have a huge incentive to lie to get people to use their products.

Generic drug companies do make profits, but they make profits in the same way that companies selling shovels and paper clips make profits. They charge a normal markup over their costs. They are not charging $30,000 for a drug that costs them a couple hundred dollars to manufacture and distribute. They will not try paying off researchers, doctors, and politicians to sell more prescriptions when they are making $5 or $10 a prescription, as opposed to the situation today when they can make one hundred times this amount.

It would be great if we interest the Kennedy-Rogan-Musk crew in a policy that would actually do something about Big Pharma abuses, but they apparently just want to yell. This is the standard operating procedure among the Trump right-wing these days.

Starting at the bottom, Donald Trump always claims that he is the savior of the ordinary working person against the elites. But his big project when he got into office in 2017 was passing a huge tax cut for the richest people in the country and large corporations. That really taught those elites a thing or two.

And, as far as the infrastructure he promised, we got lots of “infrastructure weeks,” but no infrastructure. Trump also promised us a “terrific healthcare plan” to replace Obamacare. We are still waiting for that terrific healthcare plan, but the rich got their tax cut the first year of the Trump presidency.

Anyhow, we keep seeing the Kennedy-Rogan-Musk show again and again in slightly different forms. The idea is to distract everyone from policies that could actually benefit ordinary people with inflammatory rhetoric that is unconnected to reality. They demonize people who in many cases deserve demonization, the drug companies in this case. But when it comes to policies that will actually help ordinary people, and rein in the bad guys, well — don’t look for this crew. They are too busy hyperventilating nonsense.  

[1] After paying Moderna more than $900 million for developing and testing its vaccine, the Trump administration also incredibly let them keep control of the vaccine, creating five Moderna billionaires by the summer of 2021.

It’s been hard to miss the screaming on the Internet because Dr. Peter Hotez has refused to debate RFK Jr. over vaccine safety. I think Farhad Manjoo did a good job laying out the case against Dr. Hotez debating Kennedy in a column last week.

But I think there is a more fundamental question worth asking. What exactly is the point of the outrage that these people and their Internet swarm are swirling up?

We know the rhetoric – they want to beat up the Big Pharma shills. That all sounds great except the immediate target of their anger, Dr. Hotez, is about as far from a Big Pharma shill as you can get. Dr. Hotez has devoted his career to developing low-cost vaccines, that are open-source.

This means that anyone anywhere in the world can produce them. He has deliberately used simple technologies, so that it would not be necessary to have expensive manufacturing facilities to produce them. This means that billions of people in poor countries, who would not be able to afford the patent-protected vaccines produced by Big Pharma, can afford Dr. Hotez’s vaccines.

While for the most part their markets would not overlap, to some extent there will be people who would otherwise get a vaccine from Big Pharma, but instead get the cheaper vaccine developed by Dr. Hotez and his colleagues.

In principle, many more people, including people in wealthy countries, could take advantage of the low-cost vaccines developed by Dr. Hotez. For example, instead of paying over $100 for the Moderna or Pfizer boosters against Covid, for less than $5 people in the United States could be getting shots of Corbevax, the vaccine developed by Dr. Hotez and his colleagues.

I said “could be,” because the vaccine has not been approved by the FDA. Even though more than 100 million people have received Corbevax in India and Indonesia, the FDA still requires a U.S. based clinical trial to approve the vaccine.

If the RFK/Rogan/Musk outrage gang really wanted to nail Big Pharma, they would be pushing the FDA to approve Dr. Hotez’s vaccine, rather than trashing him. In fact, Mr. Musk could even pull out some pocket change and pay for the clinical trials, if this is really what is needed to get Corbevax approved.

The issue with Big Pharma goes way beyond Corbevax or vaccines. We get hugely ripped off by the drug companies because the government grants them patent monopolies and related protections. This allows them to charge outlandish prices for the drugs that people need for their health or even their life.

We will spend over $550 billion this year for drugs that would likely sell for under $100 billion in a free market without patent monopolies. The difference of $450 billion comes to more than $3,400 a year for every household in the country. Think of that as the Big Pharma tax.

But it’s worse than just a tax that comes out of your paycheck every two weeks. This is a tax that the industry hits people with when they are in bad health. People with cancer, with multiple sclerosis, and with a wide variety of other diseases often find themselves having to struggle to get tens or hundreds of thousands of dollars for the drugs they need to sustain their health.

This can still be the case even when they have good insurance. Insurers aren’t happy to pay huge prices for drugs and they make patients jump through all sorts of hoops to get expensive drugs covered. And, even when insurers do pay for the drug, patients may still face co-pays that are a huge burden for anyone who is not a Kennedy, a Rogan, or a Musk.

It doesn’t have to be this way. If we paid for the research upfront as we did with Moderna’s Covid vaccine, in almost all cases drugs would be cheap.[1] We would be talking about paying tens or hundreds of dollars, instead of tens or hundreds of thousands of dollars.   

If the government paid for the research in advance, and then let all new drugs be sold as cheap generics, we would also eliminate the problem that the Kennedy-Rogan-Musk gang are hyperventilating over. Drug companies would no longer have a huge incentive to lie to get people to use their products.

Generic drug companies do make profits, but they make profits in the same way that companies selling shovels and paper clips make profits. They charge a normal markup over their costs. They are not charging $30,000 for a drug that costs them a couple hundred dollars to manufacture and distribute. They will not try paying off researchers, doctors, and politicians to sell more prescriptions when they are making $5 or $10 a prescription, as opposed to the situation today when they can make one hundred times this amount.

It would be great if we interest the Kennedy-Rogan-Musk crew in a policy that would actually do something about Big Pharma abuses, but they apparently just want to yell. This is the standard operating procedure among the Trump right-wing these days.

Starting at the bottom, Donald Trump always claims that he is the savior of the ordinary working person against the elites. But his big project when he got into office in 2017 was passing a huge tax cut for the richest people in the country and large corporations. That really taught those elites a thing or two.

And, as far as the infrastructure he promised, we got lots of “infrastructure weeks,” but no infrastructure. Trump also promised us a “terrific healthcare plan” to replace Obamacare. We are still waiting for that terrific healthcare plan, but the rich got their tax cut the first year of the Trump presidency.

Anyhow, we keep seeing the Kennedy-Rogan-Musk show again and again in slightly different forms. The idea is to distract everyone from policies that could actually benefit ordinary people with inflammatory rhetoric that is unconnected to reality. They demonize people who in many cases deserve demonization, the drug companies in this case. But when it comes to policies that will actually help ordinary people, and rein in the bad guys, well — don’t look for this crew. They are too busy hyperventilating nonsense.  

[1] After paying Moderna more than $900 million for developing and testing its vaccine, the Trump administration also incredibly let them keep control of the vaccine, creating five Moderna billionaires by the summer of 2021.

Of course, the New York Times did not headline a piece this way, but that would have been a more accurate headline of an article it ran last weekend discussing a turn away from “neo-liberal” policies. As I pointed out in a quick Twitter thread, that piece misrepresented a set of policies that have the effect of redistributing income upward as “free market” policies.

This is wrong in a way that is very convenient for the proponents of these policies. The massive upward redistribution of income in the last four decades is not really a debatable point. However, as a political matter, it is far more salable to say that this upward redistribution was the result of the forces of technology and globalization than of policies designed to make the rich richer.

While it should be obvious that the policies of this period were not “free market” (the free market doesn’t give us government-granted patent and copyright monopolies), it seems totally obligatory in media outlets to insist that they are. This was the case in prior decades when publications like the New York Times and Washington Post were pushing these policies, and it apparently is still standard policy when governments seem to be moving away from these policies.

While it’s obvious why the people who benefitted from this upward redistribution would insist that the causes were the natural forces of globalization and technology, it is difficult to understand why opponents of these policies largely accept this framing. This matters not just as a matter of attributing blame but also in designing better policies going forward.

For example, while it may be a good policy to subsidize the development of more advanced computer chips and the spread of clean technologies, it will matter hugely who gets control of the intellectual products created due to these subsidies. The government created at least five Moderna billionaires by paying the company nearly $1 billion to develop a COVID vaccine and then letting it keep control of the distribution of the vaccine.

It could have insisted that, as a condition of getting the money, all the technology would be in the public domain. This would mean that Moderna would get no patent monopolies or related protections, and its non-disclosure agreements for its employees would not be binding.

As I point out in the tweet thread, who gets rich is not a result of the market but how we structure the market. If we are going to design good policy, we have to recognize that the structure of the market is literally up for grabs; it is not a question of whether the government is going to intervene to alter market outcomes.  

I know this point can’t be made in the NYT or other major media outlets, but why are so few progressives interested in this obvious fact?

Of course, the New York Times did not headline a piece this way, but that would have been a more accurate headline of an article it ran last weekend discussing a turn away from “neo-liberal” policies. As I pointed out in a quick Twitter thread, that piece misrepresented a set of policies that have the effect of redistributing income upward as “free market” policies.

This is wrong in a way that is very convenient for the proponents of these policies. The massive upward redistribution of income in the last four decades is not really a debatable point. However, as a political matter, it is far more salable to say that this upward redistribution was the result of the forces of technology and globalization than of policies designed to make the rich richer.

While it should be obvious that the policies of this period were not “free market” (the free market doesn’t give us government-granted patent and copyright monopolies), it seems totally obligatory in media outlets to insist that they are. This was the case in prior decades when publications like the New York Times and Washington Post were pushing these policies, and it apparently is still standard policy when governments seem to be moving away from these policies.

While it’s obvious why the people who benefitted from this upward redistribution would insist that the causes were the natural forces of globalization and technology, it is difficult to understand why opponents of these policies largely accept this framing. This matters not just as a matter of attributing blame but also in designing better policies going forward.

For example, while it may be a good policy to subsidize the development of more advanced computer chips and the spread of clean technologies, it will matter hugely who gets control of the intellectual products created due to these subsidies. The government created at least five Moderna billionaires by paying the company nearly $1 billion to develop a COVID vaccine and then letting it keep control of the distribution of the vaccine.

It could have insisted that, as a condition of getting the money, all the technology would be in the public domain. This would mean that Moderna would get no patent monopolies or related protections, and its non-disclosure agreements for its employees would not be binding.

As I point out in the tweet thread, who gets rich is not a result of the market but how we structure the market. If we are going to design good policy, we have to recognize that the structure of the market is literally up for grabs; it is not a question of whether the government is going to intervene to alter market outcomes.  

I know this point can’t be made in the NYT or other major media outlets, but why are so few progressives interested in this obvious fact?

People routinely tout Biden’s efforts to bring back manufacturing jobs as a way to rebuild the middle class and reduce inequality. Whatever the motives, there is not much reason to believe that it will have this effect.

When the United States opened up its market to freer trade in manufactured goods, through trade deals like NAFTA and admitting China to the WTO, manufacturing workers had a substantial pay premium over workers in the rest of the private sector. This was largely because manufacturing was much more highly unionized than other parts of the private sector.

However, this is no longer true. In 2022, 7.8 percent of manufacturing workers were unionized, compared to 6.0 percent for the private sector as a whole. As a result, the pay premium for workers in manufacturing has largely disappeared.

This means that there is little reason to believe that manufacturing jobs will be good-paying jobs, unless they are unionized. While the Biden administration has tried to push measures that increase the probability that the jobs created by his policies will be union jobs, it is not clear that they will be effective. In that case, the manufacturing jobs created producing semiconductors or clean energy may be little better than other jobs that workers might have taken.

The other side of this picture is that the owners of the companies getting the subsidies, in addition to well-placed high-end workers, are likely to put lots of money in their pocket as a result of Biden’s policies. Moderna provides an excellent example of what can happen. The government paid for the company to develop a Covid vaccine, and then allowed the company to maintain control of the vaccine. The result was that we created five Moderna billionaires by the summer of 2021.

Elon Musk is another great example. Tesla benefitted hugely in its early days from Obama administration loans at below market interest rates. It is also benefitting hugely from subsidies to electric cars. As a result, we have made Elon Musk the richest person the planet.

For whatever reason, maintaining control of the technology that the government funds is literally never mentioned in discussions of industrial policy and inequality. While it would be possible for the government to make the technology open-source (no government-granted patent monopolies or non-disclosure agreements for technology) as a condition of getting the money, this is not on anyone’s agenda in Washington.

Perhaps it is good that people are at least talking about inequality these days, but it doesn’t seem like there is much interest in doing anything about it.

People routinely tout Biden’s efforts to bring back manufacturing jobs as a way to rebuild the middle class and reduce inequality. Whatever the motives, there is not much reason to believe that it will have this effect.

When the United States opened up its market to freer trade in manufactured goods, through trade deals like NAFTA and admitting China to the WTO, manufacturing workers had a substantial pay premium over workers in the rest of the private sector. This was largely because manufacturing was much more highly unionized than other parts of the private sector.

However, this is no longer true. In 2022, 7.8 percent of manufacturing workers were unionized, compared to 6.0 percent for the private sector as a whole. As a result, the pay premium for workers in manufacturing has largely disappeared.

This means that there is little reason to believe that manufacturing jobs will be good-paying jobs, unless they are unionized. While the Biden administration has tried to push measures that increase the probability that the jobs created by his policies will be union jobs, it is not clear that they will be effective. In that case, the manufacturing jobs created producing semiconductors or clean energy may be little better than other jobs that workers might have taken.

The other side of this picture is that the owners of the companies getting the subsidies, in addition to well-placed high-end workers, are likely to put lots of money in their pocket as a result of Biden’s policies. Moderna provides an excellent example of what can happen. The government paid for the company to develop a Covid vaccine, and then allowed the company to maintain control of the vaccine. The result was that we created five Moderna billionaires by the summer of 2021.

Elon Musk is another great example. Tesla benefitted hugely in its early days from Obama administration loans at below market interest rates. It is also benefitting hugely from subsidies to electric cars. As a result, we have made Elon Musk the richest person the planet.

For whatever reason, maintaining control of the technology that the government funds is literally never mentioned in discussions of industrial policy and inequality. While it would be possible for the government to make the technology open-source (no government-granted patent monopolies or non-disclosure agreements for technology) as a condition of getting the money, this is not on anyone’s agenda in Washington.

Perhaps it is good that people are at least talking about inequality these days, but it doesn’t seem like there is much interest in doing anything about it.

For better or worse (worse in my view), President Biden has not done much to restrict drilling for new oil and gas. As a result, we are now producing more than when Donald Trump was in the White House. Nonetheless, there are still many people who want to blame Biden’s restrictions for the high price of oil.

Well, none of these claims make any sense. Biden has not done much to restrict the price of oil; we are producing more oil now than under Trump, and oil is not expensive. To see the last point, I adjusted the price of oil (West Texas Intermediate) for the inflation we have seen since 2000, using the GDP deflator.[1]

As can be seen, oil prices were somewhat lower at times in the last twenty-three years. They were lower at the start of the George W. Bush administration, but higher through most of his second term. They plunged in the Great Recession, but then were higher than the current level through the rest of President Obama’s first term.

Oil prices then fell sharply towards the end of the Obama administration, as a flood of fracked oil came on line. Oil prices then rise under Trump, passing the current level in 2018 and then falling again in 2019. Oil prices plunged with the pandemic shutdown, but then soared with the reopening and the Russian invasion of Ukraine.

They have now fallen back to a level that is below where they have been for most of the first two decades of this century. In spite of the widespread whining of Republican politicians about high oil prices, they are actually lower now than for roughly half the time that George W. Bush was in the White House.  

For better or worse (worse in my view), President Biden has not done much to restrict drilling for new oil and gas. As a result, we are now producing more than when Donald Trump was in the White House. Nonetheless, there are still many people who want to blame Biden’s restrictions for the high price of oil.

Well, none of these claims make any sense. Biden has not done much to restrict the price of oil; we are producing more oil now than under Trump, and oil is not expensive. To see the last point, I adjusted the price of oil (West Texas Intermediate) for the inflation we have seen since 2000, using the GDP deflator.[1]

As can be seen, oil prices were somewhat lower at times in the last twenty-three years. They were lower at the start of the George W. Bush administration, but higher through most of his second term. They plunged in the Great Recession, but then were higher than the current level through the rest of President Obama’s first term.

Oil prices then fell sharply towards the end of the Obama administration, as a flood of fracked oil came on line. Oil prices then rise under Trump, passing the current level in 2018 and then falling again in 2019. Oil prices plunged with the pandemic shutdown, but then soared with the reopening and the Russian invasion of Ukraine.

They have now fallen back to a level that is below where they have been for most of the first two decades of this century. In spite of the widespread whining of Republican politicians about high oil prices, they are actually lower now than for roughly half the time that George W. Bush was in the White House.  

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